Question

Incorrect Question 19 0/0.2 pts In 2023, Kate Corp., had gross profit of $160M and business interest income of $2M. Kate Corp. also had deductible business expenses (other than interest and depreciation) of $60M, depreciation of $50M, and business interest expense of $40M. Kate Corp. is not a small corporation What is Kate Corp's 2019 taxable income (after application of the business interest expense limitation)? Make sure to enter all of the zeros (e.g. 10M should be entered as 10,000,000). 21,400,000

Answer 1

As per the new section, business interest should be deducted up to the extent of “business interest income” plus 30% of adjusted taxable income.

Adjusted taxable income = Gross profit – Business expenses

                                          = 160,000,000 – 60,000,000

                                          = 100,000,000

Hence,

Business interest expense (for deduction purpose) = Business interest income + 30% of Adjusted taxable income

                                                                                    = 2,000,000 + 0.30 × 100,000,000

                                                                                    = 2,000,000 + 30,000,000

                                                                                    = 32,000,000

Therefore,

Taxable income = Gross profit + Business interest income – Business expenses – Depreciation – Business interest expense

                           = 160,000,000 + 2,000,000 – 60,000,000 – 50,000,000 – 32,000,000

                           = 20,000,000 (Answer)

Note: Out of $40M interest expense, $32M is deducted in this year and the rest (40 – 32 =) $8M should be carried forward in coming years infinitely.